IPO deluge on Dalal Street! Is it an added risk for $5 trillion Indian stock market?

There is a rush to hit the Indian stock market among companies, as within a span of two weeks, some 20 initial public offerings (IPOs) are lined up. Nine offers are already underway, including from prominent names like Anand Rathi Shares, Epack Prefab Technologies and Jain Resource Recycling, looking to raise ₹5,580 crore.

The euphoric trend in the IPO market, however, like in the past, could create further challenges for the already subdued stock market. Already fraught with multiple risks like the Trump tariffs, slowing earnings and selling by foreign investors, the Indian stock market has avoided a sharp meltdown amid high liquidity in the domestic market.

However, some analysts fear that this deluge of IPOs, which began with the rebound in the Indian stock market in April this year, could pull funds away from the secondary market as investors look to make quick bucks.

This flurry of primary issuances, however, temporarily diverts liquidity from the secondary market, as funds get locked into applications, particularly in mid- and small-cap segments where retail and HNI flows overlap, explained Kalp Jain, Research Analyst, INVAsset PMS. The result is often softer volumes and heightened volatility in secondary trading.

FPIs, too, have ploughed ₹41,865 crore so far in the Indian primary market as of last week (September 21) despite being net sellers to the tune of ₹1,80,443 crore.

"Certainly, within 3 to 4 months — by the end of this calendar year itself — IPO ruh will have a very big impact on the secondary market. The massive IPO run that you're seeing now is sucking in a lot of liquidity," opined G Chokkalingam, Founder, Equinomics Research.

Also, a majority of the IPOs hitting the Indian stock markets are offers for sale by promoters and selling shareholders.

"At least if the funds were being raised for capex, the money would recirculate in the system. Some of it does, indirectly, but most of these are 100% OFS — the money goes straight into the promoters’ pockets. So even that contracts liquidity in the system," opined Chokkalingam.

However, Ajit Mishra, SVP Research at Religare Broking, opined that the small size of these IPOs will not create pressure on the indices. Liquidity still appears ample, especially when you look at things like daily turnover and other indicators, he added.

So far in 2025, domestic institutional investors have bought equities worth ₹5.3 lakh crore, with inflows through mutual funds being the highest.

Yet, despite this, the Indian stock market has trailed Asian peers and US markets, losing 3.7% of its value in a year. It is also among the worst-performing emerging markets this year.

What risks ail the Indian stock market?

According to Mishra, earnings and trade are two factors that are likely to weigh on markets.

The earnings season is about to kick off from next month, and there’s definitely some anxiety around how earnings will pan out — especially with global cues still unclear.

"Earlier, it was tariff-related issues, and now there are even visa-related concerns — which could impact services exports. So some sectors are seeing sentiment-driven impact. That said, if something goes wrong on the earnings front, it could delay recovery. A lot of people are now talking about the market touching a new high by year-end, and that really depends on how earnings play out," opined Mishra.

Meanwhile, Chokkalingam believes the secondary market cap is once again peaking — close to ₹460 lakh crore. "So even if 1% of that is sold, the market would need about ₹4.68 lakh crore — almost ₹5 lakh crore — to absorb that selling. Furthermore, there's no let-up in equity selling by FIIs and FPIs."

As a result, he warned that we’re headed for a massive correction in overvalued stocks.

Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.

As a result, he warned that we’re headed for a massive correction in overvalued stocks.

Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.